Cash Flow vs. Profit: What’s the Difference (and Why It Matters)?

If you’ve ever looked at your business’s profit and thought

“Wait… if I made money last month, then why is there nothing in the bank?”

Then you’re not alone.

This is where the confusion between cash flow and profit kicks in. They sound similar, but they’re very different and understanding the distinction could save your business from a serious financial headache.

What Is Profit?

Profit = Revenue – Expenses

In simple terms, profit is what’s left after you subtract your business costs from what you earn. It shows up on your Profit & Loss (P&L) statement and can look great on paper.

However…Profit doesn’t mean cash in the bank.

What Is Cash Flow?

Cash flow is about timing, when money actually enters or leaves your account. It’s tracked through a Cash Flow Statement and reflects your business’s real-life ability to pay bills, staff, rent, or yourself.

You could be profitable on paper and still go under because:

• Clients haven’t paid you yet (this is a common one, and a good reason to keep on top of debtors)

• You spent upfront on equipment or stock

• You’re repaying loans or taxes not accounted for in your P&L

• You’ve tied up cash in slow-moving inventory

Real-Life Example

Let’s say:

• You invoice £10,000 in April

• Your expenses are £6,000

• You “made” £4,000 profit

  
  

  But…

• Only £2,000 has actually been paid

• You bought £3,000 of stock upfront for a future job

• You’ve got £1,200 in VAT due

So you’re “profitable” but short by £2,200 in real money.

Key Differences of Profit and Cashflow at a Glance

Why Does This Matter?

• Profit looks good to investors.

• Cash flow keeps your business alive.

You can survive without profit for a while.You cannot survive without cash.

That’s why a solid cash flow forecast is just as important (if not more) than your P&L statement, especially for service businesses, freelancers, and startups with uneven income.

How to Keep Both in Check

• Track both separately (P&L vs. Cash Flow)

• Set aside tax and VAT as soon as you’re paid

• Chase invoices promptly and have clear payment terms

• Delay or stagger big spends where possible

• Review monthly cash flow alongside profitability

Final Thoughts:

Profit is what your business earned.Cash flow is what your business can spend.

You need both to grow, but without cash flow, even a profitable business can grind to a halt.

Want help building a combined cash flow + profit dashboard? I can help set one up that’s easy to maintain and understand, without the spreadsheet overwhelm.